Rep. Bohac Files Legislation to Phase Out Texas’ Franchise Tax Incrementally Over the Next 10 Years

Austin, TX — State Representative Dwayne Bohac (R-Houston) has filed HB 1314 that will phase out Texas’ Franchise Tax (also called the Margin Tax) over the next 10 years and provide significant tax relief for Texas business owners. HB 1314 will lower the franchise tax rates to 0.9 percent and 0.45 percent in 2016, and then reduce them by 10 percent annually until they are phased out over 10 years. Most taxable entities currently pay 0.975 percent, while entities that primarily operate in retail or wholesale trade pay 0.4875. This will allow the state to wind down the tax in small increments, reducing the fiscal impact while at the same time allowing for the positive effects of economic growth and job creation. In 2006, the Margin Tax was developed to replace the previous corporate income tax structure. The tax is applied to a company’s total revenue minus the greater of: cost of goods sold, total compensation, or 30 percent of total revenues. This system of taxation taxes corporate entities closer to “the top of the line”–to gross sales, regardless of profitability. “A tax scheme that taxes near the top of the line regardless of profitability is inherently inefficient and unfair. Having been only one of 15 Republicans to vote AGAINST the margin tax during a special session in 2006, I have been working tirelessly to reduce its negative impact on Texas businesses and to create better conditions for job growth and economic development,” Rep. Bohac said. “I came to the Texas House to eliminate what was, at the time, a corporate-type income tax, not replace it with a more inefficient method that punishes business owners whether they make a profit or not.” “Since its inception, this tax has been confusing, inconsistent and unfair,” Rep. Bohac said. “It is only because we have been so prudent in other areas of our budget and economy that we have been able to foster what has been labeled the ‘Texas Miracle.’ This is an overly burdensome tax on our job creators, and we must (and reasonably can) take the necessary steps to eliminate it over the next 10 years. We have the money and flexibility in the budget to do it; we just need the will.” According to the Tax Foundation, Texas is one of only five states with a gross receipts-style tax in its code. Repealing the Margin Tax would improve Texas’ overall ranking in the State Business Tax Climate Index from 10th to 3rd best in the country. One analysis shows that Margin Tax repeal would create 41,500 new jobs, $3.4 billion in new investment, and $9.8 billion in new real disposable income during the first five years. Another analysis shows that if the Margin Tax had never been created, personal income would have grown as much $46.3 billion cumulatively between 2006 and 2013, a 0.57 percent increase over actual personal income growth during that period. “According to the National Federation of Independent Business (NFIB), small businesses make up about 96% of the state’s employers. It’s imperative for our state’s economic prosperity and job creation that we continue to maintain a low tax burden on these businesses so they can continue to grow and hire new employees,” said Bohac. On November 4, 2014, Representative Dwayne Bohac was re-elected to represent House District 138. He is a lifelong district resident.

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